Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to determine how much money is available for your monthly home loan payment after you meet your various other monthly debt payments.
How to figure the qualifying ratio
Usually, conventional mortgages need a qualifying ratio of 28/36. FHA loans are a little less restrictive, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything.
The second number is what percent of your gross income every month which can be applied to housing costs and recurring debt together. Recurring debt includes vehicle loans, child support and monthly credit card payments.
For example:
A 28/36 qualifying ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you'd like to run your own numbers, feel free to use our very useful Mortgage Loan Pre-Qualifying Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be thrilled to help you pre-qualify to help you figure out how large a mortgage you can afford.
Selectplus Lending can answer questions about these ratios and many others. Call us at (818)645-7035.